Posted on 10/04/2008 10:14:59 PM PDT by 2ndDivisionVet
We make men without chests and expect of them virtue and enterprise. We laugh at honor and are shocked to find traitors in our midst. We castrate and bid the geldings to be fruitful. — C.S. Lewis
At long last, the chickens have come home to roost. And what a mess they're making.
From Wall Street to Main Street you can hear wailing and gnashing of teeth as investors—big and small—review the balances in their stock portfolios and 401(k) plans.
Corporations are failing, the government is bailing, and white-knuckled investors are holding their breath wondering when and where the market will find its bottom. Foreclosures are up, and employment is down. Workers are being laid off even as retirees are looking for jobs.
Once proud corporate chieftains—long time advocates of free markets—stand with hat in hand asking the government to bail them out. Politicians are paralyzed with fear, and the public is mad as hell.
The bloom is off the rose. Irrational exuberance is a faded memory. Bears rule.
Perhaps you think the problems causing the market meltdown are economic and financial in nature. If so, think again. Such problems are mere symptoms of the malady. The root causes are moral and ethical in nature.
For decades, secularists in America scoffed at religion and her offspring, morality and ethics. They removed religion from the realm of "truth" and reduced it to mere "opinion." Truth was limited to that which could be objectified, quantified, and verified. Since that could not be accomplished with religion (at least on this side of eternity), "religious truth" was deemed an oxymoron. Absolutes were out, relativism was in. Morals became "relative" and ethics became "situational." Virtue was rejected as an antiquated notion. Results were all that mattered.
These ideas began to permeate society, including Wall Street. And since ideas have consequences, they began to influence the way business was conducted on the Street.
Unconstrained by morality or ethics, the marketplace became a veritable free for all—especially the housing market. The ends justified the means. Greed was good. Transparency became obsolete. Honesty was out of fashion. Deception was acceptable. The doctrine of caveat emptor was elevated to a new level. Mortgage brokers and underwriters gained large commissions by approving high-risk loans and passing the risk down the line. Investment banks packed high-risk mortgages into attractive packages and sold them off as "securities" to unsuspecting investors.
Politicians aided and abetted the new business model. Under the guise of deregulation, the market was left to the devices of the men behind the curtain. The payment of millions in campaign contributions aided their efforts. Not content with reduced accountability to government regulators, Big Business sought to immunize itself from accountability to shareholders and consumers as well. "Tort reform" became the mantra. Demonization of trial lawyers became the means. Affirmative action for wrongdoers became the method. The words "corporate welfare" took on a whole new meaning.
But greed and deception were not confined to Wall Street. They also infected Main Street. A new consumerism reined. Consumers and speculators thought they deserved more house than they could afford, and they were willing to lie about their creditworthiness on loan applications. After all, why defer gratification when you can have it now? It has been estimated that as many as 70% of defaulted mortgages contain "some kind of misrepresentation by the borrower, lender or broker, or some combination of the three." The FBI recently reported that "suspicious mortgage activity increased tenfold from 2001 through 2007, and rose another 42 percent in the first quarter of 2008." But why worry about the ability to repay? The government—thanks to the work of high powered business lobbyists—had implicitly guaranteed the risk of loss. That guarantee has now become explicit—thanks, once again, to the work of high-powered lobbyists.
Fearful of the collapse of the entire economy, gurus within the government (who, not coincidentally, hail from Wall Street) are now urging lawmakers to step in and interrupt the natural consequences of these corrupt business practices. They argue that many of the perpetrators are simply "too big to fail" and that innocent parties will suffer from the ripple effect of the failure of these giants. Former advocates for free market forces now want to suspend those forces because they deem the price to be too high.
Only time will tell what the outcome of this whole debacle will be. But in the meantime, there are some valuable lessons that we should learn:
Virtue may be its own reward, but there are other rewards that flow from it as well. Virtue in the marketplace should be encouraged and applauded, not mocked and ridiculed. Honesty, accountability, and transparency are essential to the survival of free markets. Unless those virtues undergird the markets, they will collapse under the weight of greed, avarice, and deceit.
Men are not angels (as James Madison rightly observed). Therefore, government has an obligation to ensure honesty, transparency, and accountability in the marketplace. Reasonable regulations in pursuit of such virtues should be welcomed by reasonable people from all quarters of the market.
Material misrepresentations about one's products or services or financial condition constitute fraud and should not be tolerated. Perpetrators of fraud should be prosecuted by government.
Victims of fraud and deceit should be permitted to pursue remedies aimed at recovering the full measure of their damages along with other remedies designed to punish wrongdoers and to deter a repetition of such misconduct in the future. Even at its best, government is inadequate to protect consumers and investors. Innocent victims should always be afforded a remedy for their loss.
In the aftermath of the market meltdown, morality and ethics may well make a comeback. Hopefully, people will soon come to realize that virtue is never out of fashion. If they don't, we will undoubtedly have more rocky times ahead.
The financial world needs to return to honesty, transparency, and accountability in its dealings. Unrestrained greed, ambition, and immediate gratification will only lead to more crises like the current sub-prime mess. Our government must live up to its responsibility to hold criminals accountable for their crimes, and we need to relearn the responsible thrift of our forebears who learned this same lesson after the Great Depression. That calamity taught them the importance of saving and the danger of living on credit. If we do not learn that same lesson now, we will learn it the hard way in the future.
I thought the lesson was to suspend mark to market and repeal sarbox but that’s just me :)
Funny. I don’t see much in there about holding politicians accountable for their crimes.
Living under the pretense that Judeo-Christian ethics may be sequestered to the private life of the individual but carry zero sway in informing all areas of social conduct created a moral vacuum which the pressures of reality now rush to fill. The bailout only enables the problem further. It may dull the "thud" of a rough landing, but the changes that need to occur if we are to survive economically are fundamentally ethical in character.
From an email I received.
The following is a condensation of a series from the Investor’s Business Daily explaining “What Caused the Loan Crisis”. (I hope it hasn’t already been posted as a summary of the IBD articles.)
1977: Pres. Jimmy Carter signs the Community Reinvestment Act into Law. The law pressured financial institutions to extend home loans to those who would otherwise not qualify. The Premise: Home ownership would improve poor and crime-ridden communities and neighborhoods in terms of crime, investment, jobs, etc.
Results: Statistics bear out that it did not help.
How did the government get so deeply involved in the housing market? Answer: Bill Clinton wanted it that way.
1992: Republican representative Jim Leach (IO) warned of the danger that Fannie and Freddie were changing from being agencies of the public at large to money machines for the principals and the stockholding few.
1993: Clinton extensively rewrote Fannie Mae and Freddie Mac’s rules turning the quasi-private mortgage-funding firms into semi-nationalized monopolies dispensing cash and loans to large Democratic voting blocks and handing favors, jobs and contributions to political allies. This potent mix led inevitably to corruption and now the collapse of Freddie and Fannie.
1994: Despite warnings, Clinton unveiled his National Home-Ownership Strategy which broadened the CRA in ways congress never intended.
1995: Congress, about to change from a Democrat majority to
Republican, Clinton orders Robert Rubin’s Treasury Dept to rewrite the rules. Robt. Rubin’s Treasury reworked rules, forcing banks to satisfy quotas for sub-prime and minority loans to get a satisfactory CRA rating. The rating was key to expansion or mergers for banks. Loans began to be made on the basis of race and little else.
1997 - 1999: Clinton, bypassing Republicans, enlisted Andrew Cuomo, then Secretary of Housing and Urban Development, allowing Freddie and Fannie to get into the sub-prime market in a BIG way. Led by Rep. Barney Frank and Sen. Chris Dodd, congress doubled down on the risk by easing capital limits and allowing them to hold just 2.5% of capital to back their investments vs. 10% for banks. Since they could borrow at lower rates than banks their enterprises boomed.
With incentives in place, banks poured billions in loans into poor communities, often “no doc”, “no income”, requiring no money down and no verification of income. Worse still was the cronyism: Fannie and Freddie became home to out-of work-politicians, mostly Clinton Democrats. 384 politicians got big campaign donations from Fannie and Freddie. Over $200 million had been spent on lobbying and
political activities. During the 1990’s Fannie and Freddie enjoyed a subsidy of as much as $182 Billion, most of it going to principals and shareholders, not poor borrowers as claimed.
Did it work? Minorities made up 49% of the 12.5 million new
homeowners but many of those loans have gone bad and the minority homeownership rates are shrinking fast.
1999: New Treasury Secretary, Lawrence Summers, became alarmed at Fannie and Freddie’s excesses. Congress held hearings the ensuing year but nothing was done because Fannie and Freddie had donated millions to key congressmen and radical groups, ensuring no meaningful changes would take place. “We manage our political risk with the same intensity that we manage our credit and interest rate risks,” Fannie CEO Franklin Raines, a former Clinton official and current Barack Obama advisor, bragged to investors in 1999.
2000: Secretary Summers sent Undersecretary Gary Gensler to
Congress seeking an end to the “special status”. Democrats raised a ruckus as did Fannie and Freddie, headed by politically connected CEO’s who knew how to reward and punish. “We think that the statements evidence a contempt for the nation’s housing and mortgage markets” Freddie spokesperson Sharon McHale said. It was the last chance during the Clinton era for reform.
2001: Republicans try repeatedly to bring fiscal sanity to Fannie and Freddie but Democrats blocked any attempt at reform; especially Rep. Barney Frank and Sen.Chris Dodd who now run key banking committees and were huge beneficiaries of campaign contributions from the mortgage giants.
2003: Bush proposes what the NY Times called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago”. Even after discovering a scheme by Fannie and Freddie to overstate earnings by $10.6 billion to boost their bonuses, the Democrats killed reform.
2005: Then Fed chairman Alan Greenspan warns Congress: “We are placing the total financial system at substantial risk”. Sen. McCain, with two others, sponsored a Fannie/Freddie reform bill and said, “If congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole”. Sen. Harry Reid accused the GOP of trying to “cripple the ability of Fannie and Freddie to carry out their mission of expanding homeownership” The bill went nowhere.
2007: By now Fannie and Freddie own or guarantee over HALF of the $12 trillion US mortgage market. The mortgage giants, whose executive suites were top-heavy with former Democratic officials, had been working with Wall St. to repackage the bad loans and sell them to investors. As the housing market fell in ‘07, subprime mortgage portfolios suffered major losses. The crisis was on, though it was 15 years in the making.
2008: McCain has repeatedly called for reforming the behemoths, Bush urged reform 17 times. Still the media have repeated Democrats’ talking points about this being a “Republican” disaster. A few Republicans are complicit but Fannie and Freddie were created by Democrats, regulated by Democrats, largely run by Democrats and protected by Democrats. That’s why taxpayers are now being asked for $700 billion!!
If you doubt any of this, just click the links below and listen to your lawmakers own words. They are condeming!
http://www.youtube.com/watch?=68D9XrqyrWo&feature=related#
http://www.youtube.com/watch?v=pIgqfM5C8lY#
http://www.youtube.com/watch?v=H9juJr8CSY4&feature=related#
Remember during the Clinton impeachment debate? I remeber being told by his defenders, “Character does not matter.” Oh yeh? And following that the reasoning went, “if the President of the United States can get away with it so can we.” So Bernie Ebbers at WorldCom, Ken Lay at Enron, Franklin Raines at FNMA, some unethical mortgage brokers, some disnonest speculators, etc.
Back to Clinton. If the majority of the voters thought “character mattered” he never would have been elected. Shame on all of us
4 later
Now that the cat is out of the bag, we’ll start seeing more cities try to take advantage of the current situation by tossing off the onerous weight of their union pensions.
There is no way any of them can meet current and future pension requirements.
The Democrats will be fun to watch during this.
Oh Boy! I see it coming. Government refusing to lay off useless government employees and trying to raise taxes on laid off private sector employees and failing small businesses.
GOVERNMENT EMPLOYEES RIOT IN STREETS AS CITIZENS DEMAND LAYOFF.
Dumbest thing I’ve seen written about this so far. Secularists? Give me a friken break.
I’m not a stock broker and have never been a stock broker, but I’ve got IRA’s invested in stocks and have had a 401K before (kind of glad I didn’t bother with opting in for one the last time I had the opportunity to). But I’m still angry about all this and figure I have a right to be, unlike the finance shysters who thought bad mortgages were good investments. It would be nice to think that I save my money instead of giving it away to the government, inflation, or hundreds of new penny stocks.
That's when I knew we were in trouble.
I remember that, too! Was there not a companion slogan, eminently relevant to our times?: “It’s the economy, stupud!” - as though character and a vibrant, functional economy were somehow strangers.
I wonder how much untraced money went to Democrats in off shore banks? With the amount of book cooking, I imagine there are huge treasures of money in hidden bank accounts.
The focus is on the mortgage lenders. It should be on Democrats like Barney Frank and Chris Dodd.
Where is the FBI? Where is the Justice Department?
Those stupid old Birchers have been warning what would happen when a country turns the world upside down.
Robert Welch and others called it “The DESTRUCTION OF THE ABSOLUTES.”
That destruction has been nearly total.
And the cost is only now being counted.
If I have to leave it all behind and go walkabout, who knows, it might be interesting.
If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land. -2 Chronicles 7:14
That goes for the people, the churches, the business community, and the government! We have knowingly, purposefully sown the wind, and we now stand to reap the whirlwind. If we do not return to the faith of our fathers, we walk toward our certain doom.
Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other. -John Adams
This is the reason for insisting upon principle- and upon principled leaders.
Vain people don’t stop indulging in their pride and wronging others, until they are severely punished.
We're off to a grat start; stealing 700 Billion dollars from the US Taxpayer for Hank Paulson to buy worthless securities (that he will appraise) from his associates.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.